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We can readily understand why investors are attracted to unprofitable companies. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
Given this risk, we thought we'd take a look at whether 1stdibs.Com (NASDAQ:DIBS) shareholders should be worried about its cash burn. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. Let's start with an examination of the business' cash, relative to its cash burn.
Check out our latest analysis for 1stdibs.Com
When Might 1stdibs.Com Run Out Of Money?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at June 2024, 1stdibs.Com had cash of US$111m and no debt. Looking at the last year, the company burnt through US$12m. That means it had a cash runway of about 9.0 years as of June 2024. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. The image below shows how its cash balance has been changing over the last few years.
How Well Is 1stdibs.Com Growing?
It was fairly positive to see that 1stdibs.Com reduced its cash burn by 40% during the last year. But the revenue dip of 3.3% in the same period was a bit concerning. On balance, we'd say the company is improving over time. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.
Can 1stdibs.Com Raise More Cash Easily?
We are certainly impressed with the progress 1stdibs.Com has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund faster growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.
Since it has a market capitalisation of US$187m, 1stdibs.Com's US$12m in cash burn equates to about 6.5% of its market value. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.